Reader Mailbag: How to Compare Balance Transfer Offers

Q:A reader recently asked which of the following balance transfer offers was the best:

0% interest for 18 months, then going to 14%, or
0% interest for 12 months, then going to 10%?

She explained that the balance transfer fees are the same for both offers at three percent. And she wants to pay off $6,000 currently at 12%.

A: To start with, it’s a great move to take advantage of a 0% credit card rather than to continue to pay 12%. At her current rate, simple interest on $6,000 is $720. While the actual interest paid will go down as the balance declines, transferring the debt to a zero rate card is without question the right move.

But which offer is the best? The answer depends on two considerations. First, how long will it take her to pay off the $6,000. And second, can she qualify for another 0% balance transfer offer when the first one expires. Let’s take a quick look at each of these factors.

If she can pay off the $6,000 in full within 18 months, then the longer 0% offer is the best deal. She can enjoy no interest for the full 18 months making the minimum payment each month, and then pay off the remaining balance in full before the 14% rate kicks in.

On the other extreme, if she plans to make just the minimum payment until the debt is paid off, it will take her a whopping 324 months to retire the debt (actually, a tad less because of the 0% deal, but still a very long time). Under those circumstances, the higher rate on the first offer would eventually wipe out any savings she enjoyed with the longer balance transfer period.

Of course, making just the minimum payment is a really bad idea, so in most cases the longer balance transfer offer will be the best option. And that brings us to the second consideration.

When we were paying off our credit card debt, we used a string of balance transfer cards over a number of years. The result was that the only “interest” we paid was the balance transfer fee. So if she has a good credit score and employment history, she can continue to transfer her balance from one 0% card to the next until the debt is expired. In that case, the longer offer is obviously the best choice.

One word of caution. You generally cannot transfer a balance between two cards issued by the same bank. So if your debt is on a Citi credit card, for example, you won’t be able to transfer it to another Citi card. The good news is that all the major credit card issuers offer 0% cards. We keep track of the best 0% transfer deals and update the list weekly.

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Comments

You definitely need to consider the costs of a balance transfer before doing it. But in the long run, it needs to be part of a much bigger plan, that includes steps for controlling spending and paying more towards your debt, to really work. Otherwise you are just saving pennies while dollars fly out the window!

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